A Banker Bets on Organic Farming

It’s unlikely that large-scale changes in the so-called food system will happen without movement on the part of big investors. Sadly, most of these — like the corporations they support — take short-term, profit-maximizing views. (This, along with enthusiastic dabblers, is the basic reason we have bubbles.) But there are unconventional exceptions. Jeremy Grantham, the chief investment strategist for the unfortunately named G.M.O. (it stands for Grantham, Mayo, Van Otterloo & Co. LLC, and he is a company co-founder), is one of those.

Grantham, widely known in the investment community as a supercontrarian, came to my attention last month when I stumbled across an article he wrote in his firm’s quarterly newsletter entitled “Welcome to Dystopia! Entering a Long-Term and Politically Dangerous Food Crisis.” Next to this unexpected headline was a photo of (forgive the stereotype) an expectedly conventional-looking investment banker. Below it, however, were two quotes: one from Bob Marley (“Them belly full but we hungry . . .”) and one from Kenneth Boulding: “Anyone who believes exponential growth can go on forever in a finite world is either a madman or an economist.” My attention was caught.

Grantham has made offbeat predictions before, and he’s been right. In 2007, referring to remarks by the Federal Reserve chairman, Ben Bernanke, about the subprime crisis being contained, he said, “If it’s contained, the container in this case is likely to be Pandora’s.” Since then, he’s been sounding the alarm on the finite nature of resources, an undeniable state of affairs that is largely ignored by economists. And he’s concluded that the most compelling issue isn’t energy (technology will take care of that, he believes, making renewables less expensive while oil prices rise) or even metals, but food.
Grantham’s article succinctly puts economic teeth into the argument that all advocates of truly sustainable food make almost constantly: We are going to be eating sustainable, more-or-less organic and mostly regional food within a couple of generations, and the big question is whether we get to that place willingly (it might be too late for that, but one can hope) or whether we go through a dystopic convulsion first.

Citing falling grain productivity, rising resource prices (and, of course, dwindling resources; they are finite after all), snowballing water problems, declining returns from the use of chemical fertilizers, increasing energy costs, a lack of will, investment theory that is “ill-informed, manipulated, full of inertia, and corruptible,” and a newly unfavorable climate, Grantham concludes that we are “about five years into a chronic global food crisis that is unlikely to fade for many decades.”

Discussing food security and the global food crisis on the phone, Grantham was if anything more emphatic: “We have to go to an organic sustainable system or we’ll starve,” he told me. And he elegantly counters the arguments that large-scale organic agriculture (or whatever it will be called when it becomes dominant; the agro-ecological method, perhaps) cannot be profitable. (Remember, this is a guy who does profit for a living.)

He’s established foundations that are financing research in organic agriculture. After all, he said: “The U.S.D.A., the big ag schools, colleges, land grants, universities — they’re all behind standard farming, which is: sterilize the soil. Kill it dead, [then] put on fertilizer, fertilizer, fertilizer and water, and then beat the bugs back again with massive doses of insecticide and pesticide.” (At one point in the conversation, he said that most supporters of industrial agriculture, who tell “deliberate lies over and over again,” could have been taught everything they know by Goebbels.)

When he sees which research shows the highest return, Grantham intends to directly finance organic farms, on the order of 350 acres (in my book, this qualifies as “medium” in size), “and see if they can scale it up.” The first question, he said, is to accurately measure output from organic farming: is it the same as conventional, or somewhat less? Even if it’s 30 percent less, he said, because inputs are less expensive, “we save a ton of money.” Then, of course, there’s the premium in price that organic foods command.

As there is more organic product, that premium will decline, but Grantham argued, “as [conventional] input prices go up, we save relatively more … until even regular farmers will be looking closely at what we’re doing.”

None of this is going to happen quickly, or be easy: “We have no infrastructure” or training set up, and organic farming is far more “brain intensive” than industrial, he says. “Nothing against farmers, but this is much more trial and error — asking a farmer to do this is asking him to take much higher risks.

“It’s just altogether a different business — much more complicated,” he said. “But it isn’t a choice. If we keep on going the way we’re going, it will end very very badly.

“And since I think the rest of the market is in trouble,” Grantham continued, “I think a portfolio of farms that are doing state-of-the-art farming over a 20-, 30-year horizon will be the best investment money can buy. So I’m killing two birds with one stone: I want my foundation to make more money than anyone else on the planet, because that gives us much more to spend for the main event — which is saving the planet, in a nutshell.”